The Importance of a Committee Charter

by Marje Nepomuceno on July 08, 2019 and last update on July 08, 2019

Organisation documents play key roles in day to day business operations. They instill confidence not just within the company, but among investors and clients as well. There are many different kinds of documents, each of which serve different purposes—constitutions meet compliance requirements, contracts protect two parties in a deal, and many more. One of these documents is the committee charter.

A Governance Cornerstone

A committee charter is a founding document that helps committees deliver and uphold effective governance. Similar to a code of internal procedures, it defines the roles and responsibilities, as well as the mission, composition, responsibilities, and standard protocols of a committee.

As a rich, guiding document, many organisations deem committee charters as a necessary—even to the extent of calling it the “cornerstone of [an] organisation’s governance system”—and is recommended by the ASX Governance Council, Standards Australia, and other governance experts.

According to the Australia Institute of Corporate Directors (AICD), a committee charter “should clearly articulate the committee’s role and responsibilities, composition, structure and membership requirements, processes and procedures, as approved by the [group].” It holds members accountable for their actions, but also empowers and encourages them to improve their governance altogether contributing to the progress of their organisation.

Committee charters vary per organisation, but it should essentially document the various tasks and responsibilities of the team. It also must set the committee’s direction, while establishing the legal framework within which it operates and identifying its limitations and boundaries. Charters exist to establish processes, allowing committees to carry out operations efficiently and effectively.

Streamlined Meetings and Decision-Making

There are many benefits of a committee charter, such as ensuring alignment within the committee. The document ensures that all committee members are on the same page when it comes to the mission and vision of the group, their roles and responsibilities, and even the values that the company abides by. It develops a shared understanding of the committee’s existence not just within the group, but throughout the organisation as well, by providing the guiding principles that all their actions should support and lead up to.

Committee charters also serve as a point of reference. Just like any other team, committees don’t always see eye to eye. When disputes arise, a committee charter can provide clarity and reduce confusion when conflicting projects, activities, or even strategies arise. Charters can easily remind members of the original vision and purpose of their committee. Apart from this, it also serves as an introductory document and tool for new members and executives, promoting group sustainability and smooth transitions when it comes to member turnover.

Enabling committees to practice good governance is arguably the most important benefit of them all. A committee charter sets a clear group strategy, outlines effective operation and management procedures, and holds team members accountable to the very same values and principles listed in the document.

Risky, Unfocused Business

Despite these benefits, some boards don’t see the need or urgency for a committee charter and see it as a mere “compliance checklist item”. This is due in part to the amount of time, energy, and resources needed to create and maintain one. However, it can be said that not having a committee charter is an even bigger risk.

Without a guiding document, committee meetings can easily end up chaotic. This is because there is no clarity when it comes to the roles, processes, procedures, and even strategy of the group. There is no set protocol that is understood and agreed upon, which can cause confusion and a lack of order. Meetings and discussions will not have a clear direction and can become quite unproductive.

Apart from this, a lack of balance may occur because not having set guidelines can easily skew committee meetings and decisions in favour of louder, more aggressive members. Committee charters allow for a more even playing field, ensuring that everyone is able to contribute and make their voice heard. By giving members this kind of opportunity, discussions and meetings will not only be more productive, but more value adding for the organisation as a whole as well.

Value Creation by Charters

As organisations deal with ever evolving issues and operate in ever changing contexts, it is important that their committee charters are regularly reviewed and updated for them to remain relevant and of value. Even as a formal document, they depend greatly on the people who use the charter and their needs. They should be treated as living documents given that they are closely aligned with an organisation’s strategic direction. Effective Governance Australia recommends an annual review to ensure the relevance and effectiveness of the charter.

It’s also crucial that committee charters are contextualised and uniquely made for each organisation. As each organisation functions differently, with each having their own vision, mission, and goals, committee charters must guide, respond, and address the current needs and context that the organisation operates in. Committee charters will only really be value creating if they are carefully crafted with the organisation’s best interests in mind.

The committee charter is just one of the many crucial documents that organisations and their sub-groups need in their daily operations. There are brand books, meeting minutes, and board packs, just to name a few, that contribute to the success and sustainability of an organisation.